Personal Deductions, Exemptions, and Credits Flashcards
What does it take for a deduction to be above the line? What section is this under?
Section 62: for business expenses by employer, not employee
This year Matthew incurs 10k of medical expenses and his AGI is 100k. How much
of the medical expenses may he deduct under § 213(a)?
He can deduct any above 7.5%, so 2,500 in this case. Most people don’t though, since they take the standard deduction.
Under what section is medical expenses dealt with?
213
Is the 213 deduction above or below the line?
Below the line
What are the two main requirements for a medical expense under 213?
- Can only deduct that past 7.5% of income
- Must be for medical care; 231(d)(1)(A): for the diagnosis, cure, mitigation, treatment, or prevention of disease, or for the purpose of affecting any structure or function of the body
What about employer-provided coverage under an accident or health plan? What section?
106: says they are not income
What was Taylor v. Commissioner?
It dealt with the issue of what constitutes as medical care under 213. Essentially, Taylor had an allergy that disabled him from mowing his law. The court held that he could not deduct the cost of paying someone to mow his lawn under 213.
What was OCHS v. Commissioner?
Following the lower court’s decision that expenses incurred by petitioner taxpayer in sending his children to day and boarding school were non-deductible family expenses pursuant to 26 U.S.C.S. § 24(a)(1), petitioner sought review. Petitioner argued that the purpose in sending the children to boarding school was to alleviate his wife’s pain and suffering in caring for the children by reason of her inability to speak above a whisper and to prevent a recurrence of cancer. Petitioner argued that these expenses were therefore medical expenses, entitling him to a deduction. The court rejected petitioner’s argument and affirmed the decision. The court held that while it had no reason to doubt the good faith and truthfulness of petitioner and his reasons for incurring the expenses, the expenses incurred in sending the children to boarding school were nevertheless not deductible as medical expenses pursuant to the provisions of 26 U.S.C.S. § 23(x). The court held that the expenses were made necessary by the loss of the wife’s services and that family expenditures could not be converted into deductible medical expenses.
What are some policy rationales for giving medical deductions under 213? (4)
(i) Amounts spent for extraordinary medical expenses do not provide consumption in the ordinary sense and therefore are simply not part of income.
(ii) Individuals who pay their own medical costs relieve the government of an expense that it would otherwise be obliged to bear.
(iii) The deduction is a proper encouragement to people to take good care of themselves; it is a useful subsidy for medical care.
(iv) In many instances, an injury or illness stems from work (e.g., a professional athlete’s bad knee) or interferes with the ability to work (e.g., a truck driver’s bad back), so the cost of medical care should be regarded as a cost of producing income.
Why is employer provided healthcare so heavily favored?
Because the income is excluded for employees (under 106) AND the employers get a deduction
How does medical expenses remind one of Benaglia?
Because there is clearly a consumption element to each of the expenses, and yet they are wholly deductible
Taxpayers A, B, and C each have AGI for the current taxable year of 100k. Taxpayer A donates 50k to charity. Taxpayer B suffers a 50k casualty loss on property with a basis of 100k. Taxpayer C incurs 50k in medical expenses. How much may each deduct?
A: 50k (up to 50% of his AIG, which is 100k, so 50k); no floor
B: 39.9k = 50k - 100 (165(h)(1)) - 10k (165(h)(2) - that exceeds 10% of AGI); a floor of 10%
C: past 7.5% of income, so 50k-7.5k = 42.5k; a floor of 7.5%
Sam donates $100 to his favorite charity and the charity sends him a shirt with a FMV of $10. Sam hates the shirt and makes his dog wear it. His dog also hates it. (It is not, after all, for a dog.) What is the amount of Sam’s charitable contribution?
His contribution is $90
Laura is at an auction for a charitable organization. All of the items in the auction were donated to the organization. Laura bids $100 for a bottle of wine, which sells at a store for $80. Laura wins the bottle. How much can Laura deduct?
$20
Is the charitable contribution under 170 above or below the line?
below the line - itemized
What are the controversial charities?
The 501(c)(4)’s like Karl Rove’s Crossroads GPS; also includes NRA, Sierra Club
501(c)(5)(27): PACs and SuperPACs
Where are the donee rules in charitable contributions?
501
What does 501(a) say?
If it fits under 501(c), then it doesn’t have to pay income tax. 501(c)(3), for example, mirrors the 170 rule, so it will include anything you get a charitable deduction for. But there are more organizations than those, listed in 501(c)(4), and (c)(5)
